IMF programme: Goldman Sachs expects no restructuring for Ghana’s “mildly deteriorating” debt

The Goldman Sachs Group, a leading global financial institution that delivers a broad range of financial services across investment banking, securities, investment management and consumer banking to a large and diversified client base, says it does not expect the International Monetary Fund to demand debt restructuring as a precondition for Ghana’s 17th programme with the fund.

Bojosi Morule, an economist at Goldman Sachs responsible for sub-Saharan Africa and global investment research, noted in a post after the Government of Ghana announced on 1 July 2022 that it will approach the IMF for a funded programme:

“We [the Goldman Sachs Group] view today’s news as significantly positive as concessional funding will likely reduce the weighted average cost of debt and associated risk premia, helping to resolve one of Ghana’s key fiscal challenges.

“Given that debt metrics have only mildly deteriorated since the IMF’s last Article IV (July 2021) where it assessed public debt as sustainable albeit with a high risk of distress, we think the IMF may not advocate for a debt restructuring as a precondition for entering into a programme,” Morule wrote.

“In terms of programme size, we view US$2-2.5bn as likely, given our estimate of financing needs and Ghana’s IMF quota. We expect conditionality to focus on credible fiscal consolidation efforts as well as addressing contingent liabilities (notably in the energy sector),” she said.

Positive move

She described the move by the Akufo-Addo government to go to the IMF as “positive for the credit outlook (the yield on Ghanaian Eurobonds fell sharply post the announcement), although the implication for the cedi is less clear given the current inflation rate and the fact that the IMF may argue for more currency flexibility (making meaningful FX appreciation unlikely)”.

Revenue challenges

By December 2019, Ghana was using 58.3% of its revenues to service debts. This had increased to 83.4% by March 2022, and is growing.

The government’s failure to pass and implement the E-Levy, its key revenue mobilising initiative, for most of the first half of the year, dealt a big blow to its fiscal position, even after it cut expenditure by 30%.

These and many other indicators left the government with little choice other than to seek support from the IMF, an institution which works to achieve sustainable growth and prosperity for all of its 190 member countries.

IMF directive

On 1 July 2022, President Akufo-Addo authorised the Minister for Finance, Ken Ofori-Atta, to open formal engagement with the International Monetary Fund.

A statement signed by the Information Minister, Kojo Oppong Nkrumah, said the directive to the Finance Minister followed a telephone conservation between President Akufo-Addo and the IMF managing director, Kristalina Georgieva, conveying Ghana’s decision to engage with the Fund.

“The engagement with the IMF will seek to provide balance-of-payments support as part of a broader effort to quicken Ghana’s build-back in the face of challenges induced by the COVID-19 pandemic and, recently, the Russia-Ukraine crises,” the statement said.

IMF/Ghana engagement

In response, the resident representative of the IMF in Ghana, Albert Touna-Mama, confirmed that the Government of Ghana had indeed approached the Fund and said that the IMF is ready to support Ghana.

“We can confirm that the authorities have been in touch to request [the] Fund’s support to Ghana’s own economic programme,” Dr Touna Mama wrote on Friday, in a tweet that included the Information Minister’s statement.

“The IMF stands ready to assist Ghana to restore macroeconomics stability; safeguard debt sustainability; promote inclusive and sustainable growth; and face the impact of the war in Ukraine and the lingering pandemic.

“We are looking forward to meeting with the authorities in the coming weeks to start the initial discussions,” the tweet said.

Wilberforce Asare

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